Marvell Technology Group Ltd. (NASDAQ: MRVL) has agreed to purchase fellow communications semiconductor vendor Cavium, Inc. (NASDAQ: CAVM). The agreement will see holders of Cavium common stock receive $40.00 per share in cash and 2.1757 Marvell common shares for each Cavium share, a total transaction value of approximately $6 billion.
The companies expect the deal to close in the middle of next year, subject to regulatory approval and customary closing conditions. These last include the adoption by Cavium shareholders of the merger agreement and the approval by Marvell shareholders of the issuance of the necessary Marvell common shares.
The combination will pair Marvell's HDD and SSD storage controllers, networking chips, and wireless connectivity products with Cavium's multi-core processing, networking communications, storage connectivity, and security devices. The combined company will enjoy approximately $3.4 billion in annual revenue, the two parties estimate, and generate at least $150 to $175 million of annual run-rate synergies within 18 months after the transaction closes. The total serviceable addressable market for the new Marvell will be more than $16 billion, the companies assert.
"This is an exciting combination of two very complementary companies that together equal more than the sum of their parts," said Marvell President and CEO Matt Murphy. "This combination expands and diversifies our revenue base and end markets and enables us to deliver a broader set of differentiated solutions to our customers. Syed Ali has built an outstanding company, and I'm excited that he is joining the Board. I'm equally excited that Cavium's Co-founder Raghib Hussain and Vice President of IC Engineering Anil Jain will also join my senior leadership team. Together, we all will be able to deliver immediate and long-term value to our customers, employees, and shareholders."
The $40.00 in cash and 2.1757 Marvell common shares combination is based on a purchase price of $80 per share, using Marvell's price prior to November 3, which is when media reports of the proposed deal first appeared. Marvell says it will use both cash on hand and $1.75 billion in debt financing to complete the deal. The company says it has received commitments for an $850 million bridge loan and a $900 million committed term loan from Goldman Sachs Bank USA and Bank of America Merrill Lynch, in each case. However, the buy is not subject to any financing condition. Cavium shareholders would own approximately 25% of the combined company on a pro forma basis.
Cavium has been active in M&A itself, as exemplified by its 2016 acquisitiion of QLogic (see "Cavium diversifies with QLogic acquisition").
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